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Oil markets responded favourably to OPEC production cut

Published: 09:00 10 Dec 2018 GMT

oil and gas operations

It’s been a while since an OPEC meeting in Vienna lasted two days, but such was the complexity of this final meeting of the year that ministers needed extra time to make a decision on production.

Announcing that OPEC will reduce production by 1.2 million barrels in 2019, the markets responded favourably and saw Brent crude priced above US$61 with WTI above US$52 a barrel.

The production adjustment, as OPEC likes to call it, will have OPEC members remove 800-thousand barrels from the market and the 10 non-opec allies will remove 400-thousand more, beginning in January 2019.

Iran, Libya and Venezuela are exempt from the reduction due to economic pressures and ongoing sanctions.

The final press conference was delivered by ministers from Saudi Arabia, Russia and the UAE in the presence of the OPEC Secretary General Barkindo.

The mood was one of comradery and mutual admiration for the great work and cooperation delivered in challenging times in the last year.

Low prices are not good for United States

In an indirect response to President Trump’s call for lower prices, the Saudi Arabian oil minister Khalid Al Falih said that “low prices are not good for the US economy,” adding that it’s not just the American consumer who’s at stake.

He said he “met with consumers in Asia more often than we’ve heard or read tweets coming out of the White House.”

Al Falih said that the consumer is “central to our planning and decision making policy guidance.” He also called on all countries to ease off on high taxes on energy.

The Russian energy minister Alexander Novak said the cooperation of the last two years was essential to help balance the market.

He said monitoring the market in the coming months will be essential, as the first quarter of the year is already well supplied. 

No longer in crisis mode

“Two years ago we were in a crisis mode, today the situation does not seem so dire.” 

Novak also made a commitment to continue working closer with OPEC in the years to come.

Analysts agreed that this sent a positive signal to the market. Abhishek Deshpande, executive director at JP Morgan said the markets will be watching with scrutiny.

“What’s more important is how this decision is enforced and implemented,” adding that “the markets will be looking for reliability, transparency and accountability from OPEC plus.”

Russia has powerful voice with OPEC

Independent energy analyst Cornelia Meyer said, “it proves the importance of OPEC and OPEC plus when it comes to the overall aim of balancing the markets,” adding that “it also proves that Russia has become a powerful voice at the table in the two years since OPEC plus was first formed.”

The continuity of what became known as OPEC plus, following the Declaration of Cooperation in 2016 was also a highlight of this meeting with a new focus firmly in place for the additional 10 non-OPEC members.

The Secretary General Mohammed Barkindo said he expects this new Charter of Cooperation to be extended “into the medium and long term” and it’s to be formally inaugurated in a summit in early 2019.

HE Suhail Al Mazrouei, UAE minister of energy & industry and also the OPEC President for 2018 praised the success of the Declaration of Cooperation and handed the presidency of OPEC to the Venezuelan petroleum minister, Manuel Salvador Quevedo Fernandez.

The presidency rotates alphabetically among the 14 member countries now that Qatar has left the organisation.

OPEC members closed off this challenging year on a more confident note having achieved harmony in this vital decision.

The group will meet in April next as part of more frequent monitoring of the production decision and in an effort to keep the oil market in balance.

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